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NYTIMES: Fraudulent Doctors ... Fraudulent Claims

REAL doctors performed real procedures on real patients. The insurance
claims were real; so were the surgery centers that filed them. And the
money that insurers paid - a total of about $500 million, federal
investigators estimate - was most assuredly real.

Hundreds of people, many of them recent immigrants unfamiliar with
America's health care system, volunteered to undergo the medical tests
and operations. They traveled to surgery centers in Southern
California for what would be, in another context, routine procedures
like endoscopies, colonoscopies and pap smears. Some traveled, on the
clinics' dime, from as far away as Tennessee. Some of them,
investigators say, received free or discounted plastic surgery, and
others got cash.

Any such payment was and is illegal.

Insurers, meanwhile, were billed tens of thousands of dollars for each
procedure, far more than they would have paid if the patients had gone
to in-network providers.

Over the past two years, federal, state and insurance industry
investigators have unraveled what they say is one of the most
egregious cases of doctors manipulating the trust placed in them. But
this type of fraud - which draws on a web of doctors, surgery center
owners and staff, and patient recruiters known as "cappers" - is hard
to spot and stop. The California case may be just a start.

Last summer, federal and state prosecutors charged a number of surgery
center owners with fraud. This spring, several Blue Cross and Blue
Shield companies filed civil suits against several centers, their
owners and more than a dozen doctors.

Health insurance fraud is big business. The National Health Care
Anti-Fraud Association has estimated that of the $1.7 trillion spent
on health care in the United States in 2003, from 3 to 5 percent was
lost to fraud, hurting insurers that pay claims, companies that pay
premiums and patients who are asked to pay assume ever more of the
burden.

Taking just the lower figure, "you get $51 billion," said Michael J.
Costello, the association's director of investigation support. That
works out to more than $100 million a day, he said, and "if that
doesn't get your attention, nothing will."

Uncovering a well-constructed fraud can be very difficult, because
nobody has an incentive to blow the whistle - not the doctors, not the
clinic owners, not the patients receiving kickbacks and, some critics
say, not even insurers, who can simply raise premiums to cover their
costs.

If investigators' view of the California case is true, "it's not just
the doctors doing the wrong thing here," said Dr. Susan Dorr Goold,
director of the bioethics program at University of Michigan. "There're
lots of people doing the wrong thing."

A broad effort to identify surgery centers involved in fraudulent
billing probably had its genesis at a routine meeting of health
insurers in January 2003 in Tampa, Fla. The executives met three times
a year to compare notes on suspicious activity, but this session was a
little unusual because insurer after insurer had observed the same
thing: patients were driving and flying hundreds, even thousands of
miles to undergo suspiciously routine procedures.

"We all kind of looked at each other and said, 'What's going on here?'
" recalled Byron Hollis, national anti-fraud director of the Blue
Cross Blue Shield Association. "It just became apparent that we had a
nationwide problem."

AT most big insurers, sophisticated software screens claims for
unusual patterns, and then investigators step in, Mr. Costello said.
His anti-fraud group has nearly 100 insurers and about 20 government
agencies as members.

No one is sure why the suspicious activity was centered in Southern
California. But several people involved in the investigation said one
reason might have been that California, like other states, has a
"speedy payment" law, which requires insurers to pay claims in as few
as 30 days. Surgery centers could thus collect before insurers could
thoroughly review a claim's accuracy.

A few months after the Tampa meeting, insurance executives met with
law enforcement agencies in Los Angeles. Soon after, the F.B.I. began
its investigation. In an unusual move, insurers began to share
information on more than a million claims - though not patient
identities - with the F.B.I. Gathering evidence took about a year,
said Mr. Costello, who was at both meetings.

In March 2004, the F.B.I. executed search warrants at several surgery
centers in Los Angeles, said Daniel Martino, an F.B.I. supervisory
special agent. (Agents executed a warrant at another center, which Mr.
Martino would not identify, about two months ago outside Los Angeles.)
The investigators found the same disturbing pattern: Claims had been
submitted for lucrative procedures performed at clinics in Southern
California on patients from all over the country.

F.B.I. investigators reviewed claims valued at a total of more than $1
billion, Mr. Martino said. "We believe that the attempted fraud was
about $700 million and the actual losses were about $500 million," he
added.

So far, federal prosecutors have brought charges against just one
clinic, the Millennium Outpatient Surgery Center in Santa Ana, along
with its owner and three recruiters. Prosecutors asserted that they
committed fraud for up to four years. The case is set for trial in
June 2006.

The district attorney's office in Orange County last summer brought
insurance fraud, theft and conspiracy charges against eight people
tied to the Unity Outpatient Surgery Center. The preliminary hearing
in that case is scheduled for the fall.

David Swanson, a lawyer for one defendant in the state case involving
Unity, Tam Vu Pham, said his client had no role in any fraud. Mr. Pham
was an investor in at least one of the other surgery centers.

"Our position is that any surgeries that were done were necessary and
that he had no knowledge of any improprieties," Mr. Swanson said.

Efforts to reach other owners of the surgery centers were
unsuccessful.

Some insurers have filed civil lawsuits to try to recover money they
paid on what they now consider fraudulent claims. Last year, Aetna
Life Insurance sued nine surgery centers, including Unity; the lawsuit
asserted that all were effectively controlled by the same people.

Aetna's complaint stated that Unity submitted claims for more than $9
million; it is not clear how much the insurer paid.

Earlier this year, with considerable fanfare, Blue Cross and Blue
Shield companies from several states filed a civil complaint against
nearly a dozen clinics - including Unity - along with their owners,
recruiters and about 20 doctors. The Unity clinic alone billed almost
$97 million to insurers in less than a year, the complaint said.

The Blues' complaint asserts that the centers recruited patients "from
across the country to come to the clinics and undergo completely
unnecessary diagnostic and surgical procedures, so that the clinics
and the surgeons could submit phony insurance claims." Some procedures
were highly risky: so-called "sweaty palms" surgery, for instance,
requires collapsing a patient's lung to sever or clamp a nerve near
the spine.

Calls to the doctors named in the Blues' complaint were not returned.

The centers named in court documents appear to have closed. In
mid-May, a sign on the door at Millennium's offices referred mail to
the next suite down, home to a surgical center called Park Center. A
woman who answered the door there said that it had no connection to
Millennium but had bought all its equipment.

ALTHOUGH it is difficult to know what happens inside clinics, some
former patients have spoken publicly. Julio Hernandez and his wife,
Sandra Padilla, of Phoenix have talked to reporters about their
experience at Unity.

When Mr. Hernandez, who worked for a waste management company, heard
that he and his wife could get a few hundred dollars and a free
medical checkup, the opportunity sounded like a good deal. All they
had to do, Ms. Padilla recalled, was visit the Unity outpatient
surgery center in Anaheim, Calif., and they would get an endoscopy and
a colonoscopy and receive $400 or more per procedure.

"I could get money I needed," said Ms. Padilla, who makes $7 an hour
as a textile worker. Ms. Padilla said she traveled to the center in
Anaheim on two weekends in the summer of 2002; Mr. Hernandez said he
went five times. They said they realized that something was wrong when
they received checks from insurers for tens of thousands of dollars,
much more than they were told the procedures would cost. A lawyer for
the surgery center called to demand the money, threatening them with
civil litigation, jail time and even deportation, they said. Ms.
Padilla and Mr. Hernandez said they are legal residents of the United
States. They found Holly Gieszl, a lawyer at Kimerer & Derrick of
Phoenix, who alerted the insurers and prosecutors.

The problem of identifying fraud in medical procedures is more
difficult than it is in, say, tax collection, said Henry J. Aaron, a
senior fellow at the Brookings Institute. With tax evaders, regulators
can identify the types of transactions that might be used to hide
income. But in medical matters, the situation is different.

"It's not that you say, 'Oh, tonsillectomies are a problem, but
appendectomies are not,' " Mr. Aaron said. "The problem in this case
is you've got some real companies that are real bad apples, and you
have to audit everything they do. But how do you identify them?"

It is not easy to figure out how many of the accused centers are set
up or who owns them. Court documents from a three-year-old dispute
among surgery center owners offer the best picture.

A company in Orange County called Lincoln Management filed suit
against Anaheim West Surgery Center in 2002, saying it had violated
terms of a 15-year management agreement. Under that agreement, Lincoln
provided facilities, support personnel and medical equipment and paid
rent for the center. In return, Lincoln received the fees paid by
patients and insurers.

According to an amended complaint filed by Lincoln, Anaheim West's
owner, Dr. Hamilton Sah, threw Lincoln's 60 employees off the premises
without warning on June 7, 2002. As a result, Lincoln said, it lost
$46 million in insurance fees and access to medical equipment.

According to documents filed in the case, Mr. Pham - the same man
charged by state prosecutors in the case involving Unity - was the
office manager at Anaheim West and had invested $300,000 in the
venture. Mr. Pham and his wife, Huong Thien Ngo, own 40 percent of
Lincoln through another company nominally based in Nevada, court
records show; many clinics seem to have these complex layers of
ownership.

In a statement filed with the court, Mr. Pham said that Lincoln set up
the outpatient center in 2001 and hired Dr. Sah as medical director.
But Dr. Sah "was on the premises only twice in the last year," Mr.
Pham stated.

Business was good. At the time of the lawsuit, Anaheim West had fee
income of nearly $2 million a month, while operating costs were just
$400,000, according to court documents. The new clinic, St. Francis
Outpatient Medical Center, was just beginning to generate fee income,
according to Mr. Pham's statement.

While Lincoln's court filings offer no possible explanation for its
employees' eviction, filings by lawyers for Dr. Sah and Anaheim West
tell an intriguing story. According to Mitchell Rubin, co-manager of
Anaheim West with Mr. Pham and president of a company that also owns
40 percent of Lincoln, Mr. Pham had allowed illicit procedures to be
performed.

"Against Dr. Sah's express policy, Tom Vu had permitted physicians to
routinely perform cosmetic surgeries," Mr. Rubin said in a court
filing, apparently referring to Mr. Pham by one of the names he also
used. "Upon further inquiry, I learned that these procedures, and
others scheduled through Tom Vu's efforts were paid in cash, and that
records of such cash payments were not maintained."

The outcome of the lawsuit is unclear. Lawyers representing the two
sides did not return calls seeking comment. But the court documents
show how easily center owners can open new clinics. In 2002, Lincoln
formed Inland Orange Medical Management Inc., which in turn set up the
St. Francis Outpatient Medical Center. Another doctor, Daniel M. Rose,
was recruited to serve as the medical director.

When a reporter called, telephone service had been disconnected at
both St. Francis and Anaheim West. At St. Francis, in a medical office
park in Buena Park, Calif., the office appears to be closed.

That may be telling. Peter J. Diedrich, a lawyer at Beck, De Corso,
Daly, Kreindler & Harris in Los Angeles who filed the lawsuit on
behalf of Aetna, said that when insurers stop paying certain clinics
because investigators have concluded that claims are suspect, often
the clinics simply change their names and addresses.

"These guys run a scheme as long as they can get away with it, then
they shut it down" and reopen, he said.

"What they were doing back then was cosmetic surgery, and they were
billing it to insurers as other necessary medical procedures," Mr.
Chambers said. "They'd go in for a tummy tuck, and we would get a bill
for a hernia operation."

Then as now, one giveaway may be the distance traveled by patients.
Cigna stopped paying such claims, Mr. Chambers said, but also tracked
the information on everyone involved - doctors, surgery centers,
anesthesiologists and patients. When some of the same names started
appearing on claims a few years ago, for patients going cross-country
for relatively minor procedures, Cigna again did not pay.

"It involved a lot of review of claims, a lot of research, a lot of
interviewing people," Mr. Chambers said, but it saved millions of
dollars.

Some procedures have had lasting side effects. Mr. Hernandez, who made
the six-hour trip from Phoenix to Anaheim nearly three years ago in a
hot van packed with other patients, underwent surgery for sweaty
palms. He says he now has dry palms, but sweats more in other places.
He says he never wants to see a doctor again.

Mr. Hernandez and his wife say they were not asked much about their
medical histories when they made the trip for a weekend of surgeries.
On a Saturday morning, they said, they stood in the parking lot before
their surgery with other patients, comparing how much cash they would
receive.

For their surgeries, they said, they were put under total anesthesia.
When Ms. Padilla awoke, she said, she had unexplained scars from a
procedure she was never told of. A van ferried them back to a motel.
They returned on Sunday for more procedures, they said, then they
received their cash and were driven home.

One group of women from Texas has filed a civil lawsuit against the
Valley Multi-Specialty Surgical Center in Reseda area of Los Angeles,
where they said they underwent plastic surgery. They are the rare
patients who, once they concluded that they had been part of a scheme,
took two smart steps. They hired a lawyer, and they deposited the
money they received from insurers into a court account.

The women are not alone in suing Valley Multi-Specialty. In its
lawsuit last year, Aetna also accused the center of performing
unnecessary procedures. Aetna contended that Valley Multi-Specialty
was "in whole or in part, a sham entity established to bill for
services rendered by Unity."

A lawyer for the owner of Valley Multi-Specialty, Brian F. Buchanan of
Haney, Buchanan & Patterson, declined to comment on the Texas lawsuit
or the Aetna lawsuit. But Wendy Schneider, the center's finance
director, said that no plastic surgery procedures were performed
there. "You need different equipment," she said. "We don't have that
stuff."

Some surgery centers where questionable procedures were performed may
well have also performed legitimate services, Mr. Chambers of Cigna
said. That helped make detecting the problem so difficult, he said.

The criminal cases in Southern California may have helped reduce the
number of fraudulent claims there, he added. "We are experiencing
continual fraud issues because we'll always have fraud to some
extent," he said, "but nothing like what we had with them."

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